DESPITE HIGHER TAXES: Launch of cigarette alternative still a go

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    The top official of a tobacco company is working on the launch of its cigarette alternative by the first half of next year amid government’s push for higher excise taxes for heated tobacco products and vapor products.

    Denis Gorkun, president of Philip Morris Fortune Tobacco Corp. Inc. (PMFTC) said IQOS’ launch will push through regardless of the proposed tax increase for tobacco alternative products.

    “There are still a few steps to be undertaken and preparations to make sure that we launch as soon as possible,” Gorkun told reporters on the sidelines of the Brightleaf Agriculture Journalism Awards in Makati City last Friday evening.

    Gorkun said 50 markets around the world have launched IQOS and around 13 million users have switched completely to IQOS.

    “The best thing is to quit (cigarette smoking), and if people don’t quit, the best thing is to change, to seek for better alternatives and this is what we do, across all markets in Philip Morris gradually, and Philippines is one of them,” Gorkun said.

    President Duterte recently called for the immediate enactment of Senate Bill 1074, or the act increasing the excise tax on alcohol, heated tobacco and vapor products.

    The proposal aims to align the tax rate of heated tobacco products and vape with traditional cigarettes at P45 beginning next year, P50 in 2021, P55 in 2022 and P60 in 2023, with 5 percent annual increases from 2024 onwards.

    “Does that affect the launch plan, absolutely not. We are totally committed to make sure that Philippine consumers have a choice, an access to one of the most successful platforms in the world which is IQOS,” Gorkun said.

    “Our priority is to offer a much better alternative, and IQOs is a much better alternative.

    That’s our priority, to switch consumers as quickly as possible from the combustible products to heated tobacco products,” he added.

    Gorkun, however, reiterated the company’s position that taxation on heated tobacco products, and other innovative products, has to be proportionate to the risk.

    “For people who, for whatever reason, cannot quit smoking, they should be encouraged to switch to those much better alternatives, so the taxation in short has to be risk proportionate. These products cost significantly a lot more to manufacture than cigarettes.

    And of course, they bear much lower risk. That’s why the taxation should be lower than cigarettes. As you see today, they already cost even higher than most premium cigarettes already on the market,” Gorkun said.

    “The market in the Philippines is not different from any other market of Philip Morris. You know, taxation is nothing new, we have clear positions that we have stated many, many times. Taxation has to be taken with a gradual approach. The key is to make sure that the tax increases are in line with GDP (gross domestic product) growth and inflation. Because otherwise, you have an increasing illicit market, and we have seen that before in Philippines, in history,” he added.

    Gorkun said the key for all nicotine and tobacco products is to be properly regulated.

    “A good example is the United Kingdom (where) there is no usage issue, there are millions of people who use these products, adults switch to them, they just need to be regulated appropriately. But if we want to make Philippines smoke-free, we need to make sure that the regulation, allows (us) to talk to adult smokers, and to explain the product to them. I think that’s the key,” Gorkun said.

    “There will always be a debate. But we have plenty of examples around the world of reputable agencies, independent scientific experts who have reviewed our documents, our research on the risk profile of IQOS, and agreeing with us. In our mind, there is absolutely no ambiguity in terms of… that IQOS represents a much lower risk,” he added.

    He said the company has yet to decide on the price of IQOS in the Philippines.

    “We will decide how to price them, compared to our initial plan if the tax changes, because today we have a bill signed by the President in July of this year that puts a P10 tax on these products. It will be a decision point on pricing,” Gorkun said.

    “We have experience from 50 markets worldwide. Our approach is to make sure that those products are accessible to adult smokers, but not cheap enough to… create any access to groups that we don’t want to target. The pricing is sensitive at the moment but clearly we have a lot of learnings from other markets in the world,” he added.

    Many Filipino cigarette smokers however take options that will allow them to continue smoking despite the increasing price of the product, thus cigarettes are readily available to purchase in small stores or among street vendors by the stick.

    Asked to comment on this, Gorkun said, “At some point, we might consider to develop programs, how to make sure that people who traditionally buy by stick also have an access to the device, as well as this product being available in traditional stores, but that’s not the plan for the period.”

    “Our plan is clearly to bring first those products to people who buy by pack. Today, about 14 percent of Filipino consumers buy in packs. So I think we will have enough work to do, to make sure to first convince these people that buy by pack,” Gorkun said.